Angela Merkel coalition deal maintains hardline on euro

German chancellor Angela Merkel clinched a coalition deal with the Social Democrats yesterday that preserved Berlin’s strict approach towards struggling European partners.

The agreement, spelled out in minute detail in a 185-page policy document entitled Shaping Germany’s Future, was struck two months after Merkel emerged victorious from an election but fell just short of a parliamentary majority.

The result forced Merkel into negotiations with her arch-rivals, with whom she ruled in an awkward “grand coalition” during her first term from 2005-2009.

The SPD is still smarting from that experience, and its leadership has agreed to put the new deal to a vote of the party’s 474,000 members.

“We entered negotiations with very different ideas, and that is why things took a little time,” Merkel told a news conference, sitting between SPD chairman Sigmar Gabriel and Horst Seehofer, leader of the Bavarian Christian Social Union.

“We have a good chance of being able to say in 2017 that people are doing better than they were today.”

Gabriel said he was sure a “broad majority” of SPD members would back the deal in the vote, the results of which are due to be published on Dec 14.

The euro reached a four-year high against the Japanese yen and a one-month peak versus the dollar after news of the deal was released.

It was also welcomed by officials in Brussels and other European capitals. The lengthy talks have delayed movement on major European reforms, including progress on banking union.

Merkel stood firm against SPD demands for tax hikes on the rich, but to clinch the deal, she agreed to introduce a minimum wage of €8.50 per hour, which some economists have warned could push up unemployment, particularly in eastern Germany.

To reduce that risk, the parties agreed to phase it in over a period of years, with exceptions allowed until 2017.

The SPD also secured concessions from Merkel on pensions and labour market rules, softening elements of the ‘Agenda 2010’ reforms introduced a decade ago by Merkel’s predecessor as chancellor, Gerhard Schroeder of the SPD.

In the future, people who have worked for 45 years can earn full pensions from 63, four years earlier than the statutory 67-year threshold. The use of temporary workers by German firms will also be restricted to 18 months under the deal.

Hopes in France and other eurozone states that the SPD might convince Merkel to adopt bolder measures to stimulate growth and tackle unemployment were dashed in an agreement that endorsed Merkel’s carrot-and-stick approach to the euro crisis.

The coalition deal ruled out all forms of debt mutualisation and called for eurozone members to agree to binding reform contracts to boost competitiveness.

A compromise on banking union made clear that Europe’s rescue fund could only be used to recapitalise stricken banks when all other avenues had been exhausted.


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